01.11.2022 – The Federal Reserve casts its shadow ahead: tomorrow, the masters of money will speak out again. JPMorgan has drawn up six scenarios. These range from a massive rally if the Fed is tame and raises interest rates only moderately. At the other end of the scale, however, a massive sell-off is also possible. We look into the crystal ball with the investment bank.
Now it’s getting exciting again on Wall Street. JPMorgan believes that even the massive S&P 500 could be whirled around violently tomorrow, Wednesday, here the hourly chart. Wall Street apparently assumes that the Fed will not spark the Democrats in the midterms. In addition, China supports.
Source: Bernstein Bank GmbH
But let’s let the trading desk at JPMorgan Chase &. Co. to have its say. The has just come forward with a bouquet of possible scenarios based on combinations of the actual rate move and the choice of words in Fed Chairman Jerome Powell’s statement. We don’t want to deprive you of that.
1) Interest rate move of only 0.5 percent, dovish press conference: “It is difficult to conceive of a scenario where this outcome occurs given inflation levels and a tight labor market,” analysts wrote. However, “Should this outcome occur, the immediate reaction could produce a double-digit one-day return for equities.” Result: the S&P 500 shoots up 10 to 12 percent. However, this is the least likely option, albeit the most bullish, Andrew Tyler’s team wrote.
2) Interest rate move of just 0.5 percent, hawkish statement: if the Fed only moderately raises rates but becomes increasingly concerned about inflation and financial instability, this would likely happen, “S&P 500 up 4% to 5%.”
3) Fed rate up 75 basis points and a tame press conference: this would be the second most likely scenario. “If you saw the Fed give explicit guidance for the December meeting, then that is likely viewed as a dovish outcome.” That would mean: S&P 500 up 2.5 to 3 percent.
4) And here’s the most likely outcome: rate move of 75 basis points and a press event full of warnings of further moves. “This is the most likely outcome with Powell retaining optionality for December and 2023 meetings while emphasizing the current risks to inflation moving higher.” He said the SPX would respond by falling 1 percent to rising 0.5 percent.
5) 100 basis point rate hike and conciliatory press conference: just as unlikely as a small 50-point rate hike, according to JPMorgan. Moreover, if the Fed were to announce that it would complete the tightening cycle at the end of this year, the market would interpret this as a signal that the Fed already knew about the coming Consumer Price Index. We add: It would probably be disastrous. Result for the S&P 500 according to JP Morgan: minus 4 to minus 5 percent.
6) Interest rate move of 100 basis points and a hawkish conference: the best outcome for bears waiting for the recent rally to die down. The investment bank stated, “Here this would seem to be a Fed reassessing its own inflation forecasts, which some investors feel is too optimistic.” Presumed result on Wall Street: a drop for the SPX of 6 to 8 percent, followed by a presumed test of the lows for the year.
We are curious to see whether the forecasts come true. And we wish you, as always, that you are right with your trades and investments. Further, we warn you that it is best to stay away from the market during the Fed festivities – because any puzzling half-sentence from Powell can swirl the prices around. Bernstein Bank is keeping an eye on the situation for you!
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